The private sector undeniably has a crucial role in driving sustainable development, as is also evident in the new UN Sustainable Development Goals. In addition to improving their own performance, companies are increasingly held accountable for social and environmental impacts further up in their value chain. This is justified, as the scale, risk intensity and development opportunities are often greater in the supply chain.
Stakeholder expectations for both supply chain sustainability performance and transparency have grown in recent years, and the trend shows no signs of diminishing. Regulation related to responsible business and sustainability reporting is increasing, and companies face significant reputational and operational risks if they ignore social and environmental considerations in their supply chains.
Beyond risk mitigation and regulatory compliance, suppliers who perform well in sustainability usually perform better overall. By mitigating the negative impacts and maximising the positive ones, companies can gain stakeholder trust, improve productivity, retain and attract talent, support the development of new markets and ensure future availability of raw materials – just to name a few of the business benefits.
While companies are beginning to see the value of supply chain sustainability efforts, the topic is fairly new to many and is often viewed as the most difficult area of corporate responsibility. Challenges include supply chain size and complexity, resourcing, need for capacity building and limited visibility and sphere of influence.
To make the process easier and effective, companies should focus on the most relevant topics and suppliers, as well as engage in close collaboration with suppliers and other interest groups. In order to meet stakeholder expectations and gain trust, companies are also advised to be as transparent as possible about their supply chain structure, sustainability objectives and progress along the way.
Although every organisation is different, below are some tips for a step-by-step approach to improve supply chain sustainability:
1. Build understanding and commitment internally. Procurement teams typically have their hands full with daily supplier management and ensuring cost efficiency. A change of mindset is needed to understand how the sourcing decisions made today impact the operating environment of the future. Sustainability considerations should be integrated into sourcing strategies and processes, and training may be needed as the topic is often new to procurement professionals.
2. Set priorities and focus your efforts. Identifying the most significant social and environmental risks and opportunities within a company’s sphere of influence enables companies to use their resources efficiently and maximise their impact. A materiality assessment, conducted by gathering input from external and internal stakeholders, helps in identifying the most relevant sustainability aspects. Secondly, suppliers can be prioritised based on risk level, considering e.g. order volume, business impact, geographical location and supplier industry risk.
3. Define and communicate your expectations. Clear sustainability requirements for suppliers help you extend your company’s values into the supply chain. Effective communication is essential – a supplier code of conduct should not be reduced to a mere check-in-the-box contract attachment. Instead, companies should ensure that especially high-risk suppliers understand and commit to the requirements. Training sessions and discussions in regular supplier meetings may be used to achieve this goal.
4. Evaluate supplier performance. To get a high-level overview of where your suppliers currently stand in terms of sustainability, begin with a self-assessment survey. Even though the survey is based on the suppliers’ own perspective, it will trigger them to ask the right questions. Careful analysis of the responses will deepen your understanding of supplier risk level and can help you to identify which ones require more careful assessment on-site.
5. Monitor progress. Based on survey and assessment findings, corrective actions should be agreed with suppliers and followed up within a specified time frame. Additionally, setting key performance indicators for supply chain sustainability and including them in regular internal and supplier meetings helps drive progress over time. KPIs may also be made public for the sake of transparent stakeholder communications.
6. Build capacity and support continuous improvement. Rather than immediately abandoning suppliers who do not meet all expectations, you can truly make a difference by supporting those that are committed to improve. Build understanding and capacity by working closely together with identified suppliers, offering online training modules, arranging hands-on supplier sustainability trainings and sharing best practices.
7. Work together with stakeholders. Your industry peers are likely to be struggling with similar challenges, perhaps even working with the same suppliers. Supply chain issues are also often complex and cannot be solved by one company alone. Find out what is happening around your material topics and build partnerships to gain leverage, share best practices and reduce burden on suppliers.
8. Be honest and transparent. Let your stakeholders know what you are doing to improve your supply chain sustainability. Even if there are both achievements and challenges, they want to hear that your company is aware of its impacts and working to address them within a reasonable time frame. Transparency is the way of the future and is likely to build stakeholder confidence.
The momentum and stakeholder expectations on supply chain sustainability are only expected to grow. To make a positive impact, mitigate risks and gain benefits, both effective actions and transparent communications are needed from companies.
Krista Sormunen is a Sustainability Advisor at Miltton. Prior to joining Miltton, she worked with various corporate responsibility topics at Nokia and Microsoft, primarily related to supply chain sustainability. Krista is passionate about equality and human rights, and in her free time she tries to dance as much as possible.